Coronavirus and taxes: Filing do's and don'ts
The administration announced some new changes that may affect you
The coronavirus is affecting financial situations of Americans across the country, and while the majority of people expect tax season to typically bring a refund check, the current economic climate could present issues for individuals and businesses that owe the tax agency.
The good news is that there are some options for relief.
On Tuesday, the White House announced that it would allow certain groups to defer tax payments by 90 days. That includes people and small businesses owing up to $1 million, as well as businesses, corporations and sole proprietorships owing up to $10 million. Penalties and interest for the period will also be waived.
It's also important to note that the adjusted deadlines could vary depending on where you live.
"While some states are following the federal date, others are setting their own delayed deadline," Eric Bronnenkant, Head of Tax at Betterment, told FOX Business. "For example California's will be June 15 so be sure to check depending on where you live."
Eligible for relief? Here’s what you still should do:
File your taxes by the April 15 deadline. The postponement of payments will be applied automatically for eligible individuals and businesses by the tax agency.
“We encourage people to file taxes if you can,” Secretary Steven Mnuchin said on Tuesday.
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Typically, during a normal tax year, the failure to file penalty is 5 percent of the unpaid taxes for each month that a return is late. The penalty begins accruing the day after returns are due — up to a maximum of 25 percent of your unpaid taxes.
When a return is filed more than 60 days after the deadline, it is subject to a minimum late filing penalty that is the lesser of either 100 percent of the tax required to be shown on the return that was not paid on time, or a specific dollar amount that has been adjusted for inflation.
The penalty applies for a full month, even if it is less than 30 days late.
However, there are other options as well.
Americans can always file for an extension, but that would still require paying any taxes owed by the deadline.
If you cannot pay and don’t expect the deferment option to help the IRS recommends filing your return by April 15, paying as much as you can, even if it is not the total, as soon as you can.
To potentially qualify for an installment plan, you can attach a Form 9465 to the front of your return. The IRS charges a $43 fee to set up an installment plan, and an individual will pay interest plus a late payment penalty on the unpaid balance.
If you cannot pay any of what you owe, you can also apply for an “offer in compromise,” which would potentially allow you to settle your debt for less than what you owe.
Further, being proactive and communicating with tax authorities can help position you for a better outcome. If you have suffered a recent hardship, for example, the IRS may be open to negotiating a settlement with you, typically on penalties and interest (not usually the tax).
But the White House is still encouraging the average person to file their taxes on time since many will receive a refund, which could actually help their current economic situation.
As of the week ending March 6, the average tax refund was $3,012 – which is about on par with the same period the year prior. However, when compared with last year, the agency had doled out about 1.4 percent fewer refunds.
The administration announced the offer to defer payments on Tuesday to give small businesses relief as many cities across the country shutdown non-essential businesses to combat the spread of the coronavirus.